Fitch Ratings Optimistic for Participatory Banking in Morocco

Rabat – Participatory banks can “modestly stimulate the growth of deposits in the country,” says Fitch Ratings in a new analysis on the sector.

The rating agency estimates that the possibility of offering new banking products could increase their deposit bases by 5 percent to 10 percent.

In a note published on June 8, the rating agency announced that deposits should increase thanks to the introduction of Islamic banks in Morocco but stressed the need to establish a clear regulatory framework.

“We expect the growth of participatory banks to be high initially, as was the case after the introduction of Islamic finance in Turkey and Indonesia. Customers will have access to a more complete range of services. They had snubbed the conventional banks for sharia-related reasons and can now integrate the formal banking sector,” the report said.

Fitch Ratings is optimistic about the prospects for the development of participatory banks in Morocco. “Customers, who express a certain reluctance towards conventional banks for reasons related to sharia, can now access the banking market,” the agency said. However, this development will be modest, as the rate of banking is already high in Morocco (70 percent), estimates Fitch.

Participatory banks are unlikely to take significant market shares at the expense of conventional banks. The rating agency also recalls that the growth rates of the banking sector have been volatile in recent years, reflecting the instability of economic trends. “Deposit growth (almost 7 percent in 2016) has outstripped loan growth (3.9 percent) in recent years, but the demand for credit is expected to grow, in line with an improved economic outlook in 2017,” forecasts Fitch. This could generate more competition for deposits at conventional banks by playing on margins. The entry of participatory banks should reduce this competitive pressure by expanding the scope of deposits.

However, the growth of Islamic banks will depend on a number of factors, including the notoriety of Islamic finance, government involvement in the sector’s development, population growth, and changes in the regulatory framework. In this regard, the creation of a Central Council of the Sharia by the Central Bank should contribute, according to Fitch, to provide a coherent framework that would allow banks to function and flourish.

On the other hand, greater clarity on aspects as essential as the management of liquidity in accordance with the Sharia and the modalities of drawing up financing contracts would help stimulate the sector. “The delay in establishing a clear regulatory framework could hamper the development of participatory banks, resulting in increased financing costs and inadequate supply,” warned the global rating agency.